Oct. 31 (Bloomberg) -- Hana Microelectronics Pcl is among
the thousands of Thai companies with factories swamped by record
floods calling on the government to help ensure it never happens
again as waters slowly recede north of Bangkok.

“Thailand’s credibility is on the line here,” said Hana
Chief Executive Richard Han, whose Bangkok-based company makes
parts used in digital music players and mobile phones. “A
complete review of how to protect these industrial estates needs
to be conducted and it needs government support.”

More than 9 billion cubic meters of water released this
month from dams filled to capacity have swept down a river basin
the size of Florida, inundating seven industrial parks that
helped transform Thailand from an agriculture-based economy to a
manufacturing hub since the first one was built four decades
ago. The worst floods since 1942 have shuttered 10,000
factories, put 660,000 jobs at risk and caused damage of 140
billion baht ($4.6 billion), government figures show.

Factory owners are concerned the disaster may repeat itself
as water defenses fail to keep pace with the development of
roads, housing estates and business complexes in Bangkok and its
vicinity, which accounts for about half of Thailand’s industrial
output. Prime Minister Yingluck Shinawatra must now convince
companies such as Honda Motor Co. and Canon Inc. that the flood
plain remains a reliable production base.

‘Main Challenges’

“One of the main challenges to whether Thailand can
develop into a high-income country is how we can mitigate the
economic impact of natural disasters that are likely to continue
to occur more frequently with greater intensity over the next
several years,” Korn Chatikavanij, a former finance minister
with the opposition Democrat party, said in an interview. “If
we don’t learn lessons and don’t find ways to control the
impact, then we will remain a poor country.”

Slowing export growth and flood costs that Moody’s
Investors Service estimates at 200 billion baht, equivalent to 2
percent of gross domestic product, may compel Thailand to cut
interest rates. The disaster may wipe as much as 3 percentage
points off GDP growth this year, according to Credit Agricole
CIB strategist Frances Cheung.

Thai stocks this month have climbed 6.2 percent and the
baht advanced 1.5 percent, mirroring gains in the region after
European leaders agreed to expand a bailout fund to stem the
region’s debt crisis. Thai Reinsurance Pcl and Muang Thai
Insurance Pcl, both Bangkok-based insurance providers, fell more
than 20 percent in that time.

Rising Temperatures

Rising temperatures and sea levels in the coming decade
will increase the risk of floods in Bangkok four-fold by 2050,
the World Bank said in a report last year. The capital sits on
the bottom of the Chao Phraya River Basin, which has an average
elevation of less than two meters (6.6 feet) above sea level.

Thailand’s floods have claimed at least 381 lives since
July 25, according to government data.

Southeast Asia’s second-biggest economy may expand 2.6
percent in 2011, down from an earlier forecast of 4.1 percent,
and 4.1 percent next year, the Bank of Thailand said Oct. 28.

A growing insurance industry in Asia will create “a
market-based incentive for redirecting construction away from
areas that are flood prone,” said David McCauley, lead climate
change specialist at the Asian Development Bank. “Many across
the region will be paying closer attention to Bangkok’s
experience and will incorporate climate change risks in future
urban planning.”

Location and Access

In 1971, Thailand built its first industrial park in Pathum
Thani, a province on Bangkok’s northern border. The location
seemed ideal given its access to the river and railways to
transport goods, said Praipol Koomsup, who served as executive
board director of the Industrial Estate Authority of Thailand in
the early 1990s.

“At the time it never occurred to us that flooding was
going to be a major risk,” said Praipol, now a professor at
Bangkok’s Thammasat University. “We were caught unprepared.”

Over the next two decades, more estates popped up in Pathum
Thani and further up the Chao Phraya in the former capital of
Ayutthaya province, 76 kilometers (47 miles) north of Bangkok.
Annual floods helped the city, now a United Nations World
Heritage Site, repel Burmese invasions in the 16th century.

Thailand offered greater tax incentives to invest in
Ayutthaya and other provinces outside Bangkok, helping to
attract Japanese manufacturers such as Nikon Corp., Sony Corp.
and Hitachi Ltd., particularly after the 1985 Plaza Accord
strengthened the yen against the dollar. The country makes about
a quarter of the world’s hard-disk drives and serves as the
Southeast Asian production hub for Japanese carmakers.

Water Demand

Increased demand for water to grow crops during the dry
season prompted authorities to keep more water in upstream dams
this year, said Chaiyut Sukhsri, a water resources engineering
professor at Bangkok’s Chulalongkorn University. Since the
1950s, more than 300 dams have been built to hold water from
Thailand’s monsoon rains from July to October for use the rest
of the year.

The largest of these, Bhumibol and Sirikit, can irrigate
400,000 hectares (1,544 square miles) in the Chao Phraya basin,
an area six times bigger than Singapore. The added production
has helped Thailand remain the world’s top rice exporter each
year since 1981, according to the U.S. Department of
Agriculture.

“Normally there is always a lack of water to distribute to
all parties,” Chaiyuth said. “It’s a difficult balancing
act.”

‘No System at All’

Rainfall about 42 percent more than average this year
filled upstream dams to capacity, prompting authorities to
release large amounts of water earlier this month. Government
efforts to reinforce dikes protecting the estates proved futile
against a wall of water as high as 3 meters (9.8 feet).

Unlike Bangkok, which is protected by a series of canals
and dikes, “there is no system at all” in Ayutthaya and Pathum
Thani to divert water flowing through rice fields, said Bhichit
Rattakul, a former Bangkok governor who helped develop the
city’s flood defenses. “When the water comes, it just flows
into the industrial estates.”

Yingluck said Oct. 29 that waters in Nakhon Sawan and
Ayutthaya provinces have started to recede. The government will
start pumping out water from flooded industrial parks on Nov.
10, and expects plants to resume operations around the middle of
December, Industry Minister Wannarat Charnnukul said on Oct. 28
after meeting with companies affected by floods.

Building Walls

The government will seek to build walls around industrial
estates that are 50 percent higher than the top water level this
year to protect them from flooding before next year’s rainy
season, Energy Minister Pichai Naripthaphan, who is advising
Yingluck on recovery efforts, said by phone.

“That way even if more water comes, there won’t be any
problem,” Pichai said. “Investors can be sure they don’t need
to move out.”

About 100 billion baht will need to be spent in the next 12
months to renovate flooded industrial estates, he said. A second
project to solve long-term water-management problems will cost
as much as 800 billion baht, he said.

The cost of helping companies recover and build new
infrastructure to divert water could be as much as 500 billion
baht, according to Pongsak Assakul, vice chairman of the Thai
Chamber of Commerce.

“All investors are asking how can we be sure this will not
happen next year or the year after,” he said by phone. “That
assurance has to be given.”